<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)
    X          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) 
   ---              OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended September 30, 1997
  
                                        or

               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

              For the transition period from _________ to _________

                         Commission File Number 0-12900

                          ALLIANCE PHARMACEUTICAL CORP.
             (Exact name of Registrant as specified in its charter)

New York                                     14-1644018
---------------------------------            ------------------------------
(State or other jurisdiction                 (I.R.S. Employer
of incorporation or organization)            Identification Number)

3040 Science Park Road
San Diego, California                        92121
---------------------------------            ------------------------------
(Address of principal                        Zip Code
executive offices)

Registrant's telephone number,
including area code:                         619-558-4300
                                             ------------------------------

Indicate by a check whether the registrant (1) has filed all reports required 
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 
during the preceding 12 months (or for such shorter period that the 
Registrant was required to file such reports), and (2) has been subject to 
filing requirements for the past 90 days.

     Yes       X                             No  
          ------------                          -------------
                         
As of October 31, 1997, Registrant had 31,473,974 shares of its Common Stock, 
$.01 par value, outstanding.

<PAGE>

ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES

INDEX
-----                                                           Page No.
                                                                --------

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements                                

  Condensed Consolidated Balance Sheets                             3

  Condensed Consolidated Statements of Operations                   4

  Condensed Consolidated Statements of Cash Flows                   5

  Notes to Condensed Consolidated Financial Statements              6

Item 2. Management's Discussion and Analysis of 
 Financial Condition and Results of Operations                      8

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K                            12


                                      2

<PAGE>
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION:
Item 1.  Financial Statements
   ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
   ----------------------------------------------
   CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------------------------------

                                                                        SEPTEMBER 30,          JUNE 30,
                                                                             1997                1997
   ASSETS                                                                (UNAUDITED)            (NOTE)
   ------                                                               -------------      -------------
   <S>                                                                  <C>                <C>
   CURRENT ASSETS:
     Cash and cash equivalents                                          $  24,668,000      $  14,590,000 
     Short-term investments                                                53,340,000         57,041,000 
     Research revenue receivable                                            2,250,000          7,250,000 
     Other current assets                                                   1,121,000          1,147,000
                                                                        -------------      -------------
           Total current assets                                            81,379,000         80,028,000 

   PROPERTY, PLANT AND EQUIPMENT - NET                                     16,785,000         16,574,000 
   PURCHASED TECHNOLOGY - NET                                              14,020,000         14,400,000 
   OTHER ASSETS - NET                                                       1,002,000          1,011,000 
                                                                        -------------      -------------
                                                                        $ 113,186,000      $ 112,013,000
                                                                        -------------      -------------
                                                                        -------------      -------------

   LIABILITIES AND STOCKHOLDERS' EQUITY

   CURRENT LIABILITIES:
     Accounts payable                                                   $   1,702,000       $  2,807,000 
     Accrued expenses                                                       2,542,000          3,439,000 
     Deferred revenue                                                       2,346,000          2,500,000 
     Payable for acquired in-process technology                             5,057,000          7,557,000 
     Current portion of long-term debt                                      1,656,000          1,508,000
                                                                        -------------      -------------
            Total current liabilities                                      13,303,000         17,811,000 

   LONG-TERM DEBT                                                           2,340,000          2,742,000 
   OTHER                                                                      106,000            129,000 

   STOCKHOLDERS' EQUITY:
     Preferred stock - $.01 par value; 5,000,000 shares authorized;
       500,000 and 0 shares of Series D issued and outstanding at  
       September 30, 1997 and June 30, 1997, respectively                       5,000                 - 
     Common stock - $.01 par value; 50,000,000 shares authorized;
       31,465,564 and 31,164,935 shares issued and outstanding at 
       September 30, 1997 and June 30, 1997, respectively                     315,000           311,000 
     Additional paid-in capital                                           334,715,000       322,268,000 
     Accumulated deficit                                                 (237,598,000)     (231,248,000)
                                                                        -------------      -------------
            Total stockholders' equity                                     97,437,000        91,331,000 
                                                                        -------------      -------------
                                                                        $ 113,186,000     $ 112,013,000
                                                                        -------------      -------------
                                                                        -------------      -------------

   Note:  The balance sheet at June 30, 1997 has been derived from the audited financial statements at that date but does not
          include all of the information and footnotes required by generally accepted accounting principles for complete financial
          statements.
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                      3

<PAGE>

   ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
   ----------------------------------------------
   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------

                                                         THREE MONTHS ENDED
                                                            SEPTEMBER 30, 
                                                        1997            1996
                                                    -----------     -----------
                                                            (UNAUDITED)
   REVENUES:
     License and research revenue                   $ 6,539,000     $ 5,750,000

   OPERATING EXPENSES:
     Research and development                        12,046,000       9,250,000
     General and administrative                       1,812,000       1,947,000
                                                    -----------     -----------
                                                     13,858,000      11,197,000
                                                    -----------     -----------
   LOSS FROM OPERATIONS                              (7,319,000)     (5,447,000)

   INVESTMENT INCOME AND OTHER - NET                    969,000       1,034,000
                                                    -----------     -----------
   NET LOSS                                         $(6,350,000)    $(4,413,000)
                                                    -----------     -----------
                                                    -----------     -----------

   NET LOSS PER COMMON SHARE                        $     (0.20)    $     (0.15)
                                                    -----------     -----------
                                                    -----------     -----------

   WEIGHTED AVERAGE NUMBER OF 
     SHARES OUTSTANDING                              31,316,000      30,026,000
                                                    -----------     -----------
                                                    -----------     -----------


SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                      4

<PAGE>

<TABLE>
<CAPTION>
   ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
   ----------------------------------------------
   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------

                                                                                 THREE MONTHS ENDED
                                                                                    SEPTEMBER 30,
                                                                               1997              1996
                                                                          ------------       ------------
                                                                                    (UNAUDITED)
   <S>                                                                    <C>                <C>
   OPERATING ACTIVITIES:
     Net loss                                                             $ (6,350,000)      $ (4,413,000)
     Adjustments to reconcile net loss to net cash used in operations:    
       Depreciation and amortization                                         1,213,000            818,000
       Changes in operating assets and liabilities:
         Research revenue receivable                                         5,000,000                  -
         Deferred revenue                                                     (154,000)                 -
         Other assets                                                           35,000           (566,000)
         Accounts payable and accrued expenses and other                    (2,025,000)        (1,955,000)
                                                                          ------------      -------------
   Net cash used in operating activities                                    (2,281,000)        (6,116,000)
                                                                          ------------      -------------

   INVESTING ACTIVITIES:
     Short-term investments                                                  3,613,000         17,703,000
     Property, plant and equipment                                          (1,044,000)          (558,000)
                                                                          ------------      -------------
   Net cash provided by investing activities                                 2,569,000         17,145,000
                                                                          ------------      -------------

   FINANCING ACTIVITIES:
     Issuance of common stock                                                  294,000            409,000
     Issuance of convertible preferred stock                                 9,750,000                  -
     Principal payments on long-term debt                                     (254,000)          (173,000)
                                                                          ------------      -------------
   Net cash provided by financing activities                                 9,790,000            236,000
                                                                          ------------      -------------

   INCREASE IN CASH AND CASH EQUIVALENTS                                    10,078,000         11,265,000
   CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                         14,590,000          9,480,000
                                                                          ------------      -------------
   CASH AND CASH EQUIVALENTS AT END OF PERIOD                             $ 24,668,000      $  20,745,000
                                                                          ------------      -------------
                                                                          ------------      -------------

   SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING 
     AND FINANCING ACTIVITIES:
   Issuance of common stock in connection with 
     acquired in-process technology                                       $  2,500,000
</TABLE>


SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                      5

<PAGE>

ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION 

     Alliance Pharmaceutical Corp. and its subsidiaries (collectively, the 
"Company" or "Alliance") are engaged in identifying, designing, and 
developing novel medical products.

PRINCIPLES OF CONSOLIDATION 

     The consolidated financial statements include the accounts of Alliance 
Pharmaceutical Corp., its wholly owned subsidiary Astral, Inc., its wholly 
owned subsidiary MDV Technologies, Inc. ("MDV") from the acquisition date of 
November 1996, and its majority-owned subsidiaries, Talco Pharmaceutical, 
Inc. and Applications et Transferts de Technologies Avancees ("ATTA").  ATTA 
was dissolved in 1997.  All significant intercompany accounts and 
transactions have been eliminated.  Certain amounts in 1997 have been 
reclassified to conform to the current year's presentation.

INTERIM CONDENSED FINANCIAL STATEMENTS

     The condensed consolidated balance sheet as of September 30, 1997, the 
condensed consolidated statements of operations for the three months ended 
September 30, 1997 and 1996, and the condensed consolidated statements of 
cash flows for the three months ended September 30, 1997 and 1996 are 
unaudited. In the opinion of management, such unaudited financial statements 
include all adjustments, consisting only of normal recurring accruals, 
necessary for a fair presentation of the results for the periods presented.  
Interim results are not necessarily indicative of the results to be expected 
for the full year.  The financial statements should be read in conjunction 
with the Company's consolidated financial statements and footnotes thereto 
included in the Company's annual report on Form 10-K for the year ended June 
30, 1997.

PURCHASED TECHNOLOGY

     The purchased technology was primarily acquired as a result of the 
merger of Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in 
1989.  The technology acquired is the Company's core perfluorochemical 
("PFC") technology and was valued based on an analysis of the present value 
of future earnings anticipated from this technology at that time.  The 
Company identified alternative future uses for the PFC technology, including 
the OXYGENT-TM- (temporary blood substitute) and LIQUIVENT-Registered 
Trademark- (intrapulmonary oxygen carrier) products. Purchased technology 
also includes $2 million for technology capitalized as a result of the 
acquisition of BioPulmonics, Inc. ("BioPulmonics") in December 1991.  Since 
the acquisition, an alternative future use of the acquired technology has 
been pursued by the Company.  An intrapulmonary drug delivery system using 
the PFC-based liquid as a carrier (or dispersing agent) is being developed by 
Alliance from the liquid ventilation technology.

     The PFC technology is the basis for the Company's main drug development 
programs and is being amortized over a 20-year life. Accumulated amortization 
for this PFC technology was $10 million and $8.8 million at September 30, 
1997 and 1996, respectively.  The technology

                                   6

<PAGE>

acquired from BioPulmonics is being amortized over five to seven years and 
accumulated amortization was $1.3 million and $929,000 at September 30, 1997 
and 1996, respectively.

     The carrying value of purchased technology is reviewed periodically 
based on the projected cash flows to be received from license fees, milestone 
payments, royalties and other product revenues.  If such cash flows are less 
than the carrying value of the purchased technology, the difference will be 
charged to expense.

ACQUIRED IN-PROCESS TECHNOLOGY

     In November 1996, the Company acquired MDV by a merger (the "MDV 
Merger") of a wholly owned subsidiary of the Company into MDV. MDV is engaged 
in the development of a thermo-reversible gel, FLOGEL-Registered Trademark-, 
intended for use as an anti-adhesion treatment for persons undergoing 
abdominal or pelvic surgeries.  FLOGEL is applied in a cold, liquid form and 
becomes a gel at body temperature.  MDV has obtained preliminary human safety 
data with the product's current formulation, and has performed preclinical 
studies on additional formulations.

     The consideration payable in the MDV Merger consists of $15.5 million, 
payable in common stock or cash, of which $8 million was paid during fiscal 
1997, $2.5 million was paid on August 13, 1997, and $5 million will be paid 
on November 13, 1997.  The $8 million payments made in fiscal 1997 and the 
$2.5 million payment made in August of 1997 were made through the delivery of 
703,093 and 248,879 shares of the Company's common stock, respectively.  
Additionally, the Company will pay up to $20 million if advanced clinical 
development or licensing milestones are achieved in connection with MDV's 
technology.  The Company will also make certain royalty payments on the sales 
of products, if any, developed from such technology.  The Company may buy out 
its royalty obligation for $10 million at any time prior to the first 
anniversary of the approval by U.S. regulatory authorities of any products 
based upon the MDV technology (the amount increasing thereafter over time).  
All of such payments to the former MDV shareholders may be made in cash or, 
at the Company's option, shares of the Company's common stock, except for the 
royalty obligations which will be payable only in cash.  The Company has not 
determined whether subsequent payments (other than royalties) will be made in 
cash or in common stock or, if made in cash, the source of such payments.  
There can be no assurance that any of the contingent payments will be made, 
because they are dependent on future developments which are inherently 
uncertain.

NEW ACCOUNTING STANDARDS.

     In February 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" 
("SFAS No. 128").  SFAS No. 128 requires the presentation of basic and 
diluted earnings per share amounts. Basic earnings per share is calculated 
based upon the weighted average number of common shares outstanding during 
the period while diluted earnings per share also gives effect to all 
potential dilutive common shares outstanding during the period such as 
options, warrants, convertible securities, and contingently issuable shares.  
SFAS No. 128 is effective for periods ending after December 15, 1997.  The 
Company does not expect SFAS No. 128 to have a material impact on its 
calculations of earnings per share.

                                        7
<PAGE>

2. LICENSE AGREEMENT

     In September 1997, the Company entered into a license agreement (the 
"Schering License Agreement") with Schering AG, Germany ("Schering"), which 
provides Schering with worldwide exclusive marketing and manufacturing rights 
to Alliance's drug compounds, drug compositions and medical devices and 
systems related to perfluorocarbon ultrasound imaging products, including 
IMAGENT-Registered Trademark-US.  The product will be developed jointly by 
Alliance and Schering.  Under the Schering License Agreement, Schering paid 
to Alliance an initial license fee of $4 million and agreed to pay further 
milestone payments and royalties on product sales.  Schering also agreed to 
provide funding to Alliance for some of its development expenses.  In 
conjunction with the Schering License Agreement, Schering Berlin Venture 
Corp., an affiliate of Schering, purchased 500,000 shares of the Company's 
convertible Series D Preferred Stock for $10 million.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(References to years are to the Company's fiscal years ended June 30.)

     Alliance has devoted substantial resources to research and development 
related to its medical products.  The Company has been unprofitable since 
inception and expects to continue to spend substantial amounts on research 
and development, preclinical testing and clinical trials, regulatory 
activities, and commercial manufacturing start-up. The Company has entered 
into collaborative research and development agreements with companies for 
OXYGENTTM, LIQUIVENT-Registered Trademark-, IMAGENT US, and RODA TM.  The 
arrangements with its existing partners for OXYGENT, LIQUIVENT, and IMAGENT 
US require them to reimburse the Company for certain approved development 
expenses incurred for the respective products.  All three partners for such 
products will make milestone payments to the Company upon the achievement of 
certain product development events, followed by royalties on sales at 
commercialization.  With respect to RODA, the Company has agreed to reimburse 
VIA Medical Corporation for substantially all of its development expenses and 
to share revenues on the sale of products.  If some of the development events 
under its existing agreements are achieved and the relevant payments made by 
partners, the Company could become profitable on a periodic basis over the 
next two years, prior to the commercialization of products.  However, the 
timing and amounts of such payments, if any, cannot be predicted with 
certainty and may not occur if product development events are not achieved.  
There can be no assurance that the Company will be able to achieve 
profitability at all or on a sustained basis.

LIQUIDITY AND CAPITAL RESOURCES

     Through September 1997, the Company financed its activities primarily 
from public and private sales of equity and funding from collaborations with 
corporate partners. To date, the Company's revenue from the sale of products 
has not been significant.

     In January 1997, the Company entered into a loan and security agreement 
with a bank under which the Company received $3.5 million.  Amounts borrowed 
under the agreement are secured by certain fixed assets and, pursuant to two 
promissory notes, are to be repaid over three and four years, respectively.  
If certain financial covenants are not satisfied, the outstanding balance may 
become due and payable.  On September 30, 1997, the balance outstanding on 
these loans was $3.2 million.  The Company has another loan from a financing 
company with an outstanding balance of $752,000 on September 30, 1997.  The 
Company has financed

                                        8

<PAGE>

substantially all of its office and research facilities and related leasehold 
improvements under operating lease arrangements and loan and security 
agreements.

     In September 1997, the Company entered into the Schering License 
Agreement with Schering AG, Germany.  See Note 2 to the Condensed 
Consolidated Financial Statements for information related to the license 
agreement.

     See Note 1 to the Condensed Consolidated Financial Statements for 
information related to the November 1996 acquisition of MDV by the Company.

     In February 1996, the Company entered into a license agreement (the 
"HMRI License Agreement") with Hoechst Marion Roussel, Inc. ("HMRI"), which 
provides HMRI with worldwide marketing and manufacturing rights to the 
intratracheal administration of liquids, including LIQUIVENT, which perform 
bronchoalveolar lavage or liquid ventilation.  The product is being developed 
jointly by Alliance and HMRI, with HMRI responsible for most of the costs of 
development and marketing.  HMRI has agreed to pay milestone payments and 
royalties on product sales.  On June 30, 1997, HMRI paid the Company a $2.5 
million milestone payment and $2.5 million for the purchase of clinical trial 
supplies.  The Company also announced in June 1997 that the parties have 
agreed in principle to modify the HMRI License Agreement to (i) adjust 
certain milestone payments and (ii) temporarily revise the method for 
reimbursing the expenses for portions of the development work, in conjunction 
with the temporary interruption of the LIQUIVENT clinical development program 
in April 1997.  The modification is being formalized by an amendment which is 
expected to be executed in the near future. Prior to the modification, the 
HMRI License Agreement required HMRI to reimburse Alliance for approved 
worldwide development expenses incurred by Alliance on a quarterly basis.  
Under the modified agreement, from July 1997 Alliance will conduct and be 
responsible for funding development activities in North America through 
December 1997.  HMRI will reimburse Alliance for approved expenses for such 
activities in the form of payments which will be made upon the occurrence of 
specified events subsequent to December 1997.  HMRI will continue to be 
responsible for conducting and funding any activities outside of North 
America.  Beginning in January 1998, HMRI will resume funding for 
substantially all LIQUIVENT development expenses worldwide.  The agreement in 
principle provides for the establishment of a mechanism for HMRI to recoup 
from Alliance certain reimbursed development expenses if HMRI terminates the 
HMRI License Agreement prior to January 1998.

     In August 1994, the Company executed a license agreement (the "Ortho 
License Agreement") with Ortho Biotech Inc. and The R.W. Johnson 
Pharmaceutical Research Institute, a division of Ortho Pharmaceutical 
Corporation (collectively referred to as "Ortho"), which provides Ortho with 
worldwide marketing and, at its election, manufacturing rights to the 
Company's injectable perfluorochemical emulsions capable of transporting 
oxygen for therapeutic use, including OXYGENT.  Ortho has agreed to pay 
milestone payments and royalties on product sales.  Ortho is responsible for 
substantially all of the costs of developing and marketing the products.  In 
December 1996, Ortho paid the Company a $15 million milestone payment under 
the Ortho License Agreement.

     The Company had net working capital of $68.1 million at September 30, 
1997, compared to $62.2 million at June 30, 1997.  The Company's cash, cash 
equivalents, and short-term investments increased to $78 million at September 
30, 1997 from $71.6 million at June 30, 1997.

                                       9

<PAGE>

     The increase resulted primarily from proceeds from the sale of 
convertible preferred stock of $10 million in conjunction with the Schering 
License Agreement, offset by cash used in operations of $2.3 million and 
property, plant and equipment additions of $1 million.  The Company's 
operations to date have consumed substantial amounts of cash, and are 
expected to continue to do so for the foreseeable future.    

     The Company continually reviews its product development activities in an 
effort to allocate its resources to those product candidates that the Company 
believes have the greatest commercial potential.  Factors considered by the 
Company in determining the products to pursue include projected markets and 
need, potential for regulatory approval and reimbursement under the existing 
healthcare system, status of its proprietary rights, technical feasibility, 
expected and known product attributes, and estimated costs to bring the 
product to market.  Based on these and other factors, the Company may from 
time to time reallocate its resources among its product development 
activities.  Additions to products under development or changes in products 
being pursued can substantially and rapidly change the Company's funding 
requirements.

     The Company expects to incur substantial additional expenditures 
associated with product development.  The Company will seek additional 
collaborative research and development relationships with suitable corporate 
partners for its non-licensed products. There can be no assurance that such 
relationships, if any, will successfully reduce the Company's funding 
requirements.  Additional equity or debt financing may be required, and there 
can be no assurance that funds from these sources will be available on 
reasonable terms, if at all. If adequate funds are not available, the Company 
may be required to delay, scale back, or eliminate one or more of its product 
development programs, or obtain funds through arrangements with collaborative 
partners or others that may require the Company to relinquish rights to 
certain of its technologies, product candidates, or products that the Company 
would not otherwise relinquish.

     Alliance believes that its current capital resources, expected revenues 
from the Ortho License Agreement, HMRI License Agreement, and Schering 
License Agreement, and investments will be adequate to satisfy its capital 
requirements for at least the next 24 months.  The Company's future capital 
requirements will depend on many factors, including, but not limited to, 
continued scientific progress in its research and development programs, 
progress with preclinical testing and clinical trials, the time and cost 
involved in obtaining regulatory approvals, patent costs, competing 
technological and market developments, changes in existing collaborative 
relationships, the ability of the Company to establish additional 
collaborative relationships, and the cost of manufacturing scale-up.

     The Company anticipates that capital expenditures for facilities will 
increase significantly over the next twelve to eighteen months, some or all 
of which will be financed by third parties.  While the Company believes that 
it can produce materials for clinical trials and the initial market launch 
for its emulsion products at its existing San Diego facility and for 
LIQUIVENT at its Otisville, New York facility, it may need to expand its 
commercial manufacturing capabilities for its products in the future.  The 
Company's existing  San Diego facility currently produces material for 
clinical trials for IMAGENT US.  The Company is in the process of leasing an 
additional facility and will expand its market launch production capacity in 
San Diego for IMAGENT US.  Any expansion for any of its products may occur in 
stages, each of which would require regulatory approval, and product demand 
could at times exceed supply capacity.  The Company has not selected a site 
or obtained any regulatory approvals for construction of a commercial 
production

                                        10

<PAGE>

facility for its products, nor can there be any assurance that it 
will be able to do so.  The Company cannot predict the amount that it will 
expend for the construction of such a production facility, and there can be 
no assurance as to when or whether the U.S. Food and Drug Administration will 
determine that such facility complies with Good Manufacturing Practices.  The 
projected location and construction of a facility will depend on regulatory 
approvals, product development, and capital resources, among other things.  
The Ortho License Agreement provides an option for Ortho to elect to 
manufacture the emulsion products referred to therein, or to require the 
Company to manufacture such products at a negotiated price.  The HMRI License 
Agreement requires the Company to manufacture LIQUIVENT at its Otisville 
facility for a period of time after market launch and to sell the product to 
HMRI at a negotiated price.  HMRI will be responsible for establishing 
production capacity beyond the maximum capacity of the Otisville facility.  
The Schering License Agreement requires the Company to manufacture products 
at its San Diego facility for a period of time after market launch at a 
negotiated price.  Schering will be responsible for establishing production 
capacity beyond the maximum capacity of the San Diego facility.

     Except for historical information, the statements made herein and 
elsewhere are forward-looking.  The Company wishes to caution readers that 
these statements are only predictions and that the Company's business is 
subject to significant risks.  The factors discussed herein and other 
important factors in some cases have affected, and in the future could 
affect, the Company's actual results and could cause the Company's actual 
consolidated results for 1998, and beyond, to differ materially from those 
expressed in any forward-looking statements made by, or on behalf of, the 
Company.  These risks include the inability to enter into collaborative 
relationships to further develop and commercialize the Company's products; 
changes in any such relationships, or the inability of any collaborative 
partner to adequately commercialize any of the Company's products; the 
uncertainties associated with the lengthy regulatory approval process; 
obtaining and enforcing patents important to the Company's business; and 
possible competition from other products.  Furthermore, even if the Company's 
products appear promising at an early stage of development, they may not 
reach the market for a number of important reasons.  Such reasons include, 
but are not limited to, the possibilities that the potential products will be 
found ineffective during clinical trials; failure to receive necessary 
regulatory approvals; difficulties in manufacturing on a large scale; failure 
to obtain market acceptance; and the inability to commercialize because of 
proprietary rights of third parties.  The research, development, and market 
introduction of new products will require the application of considerable 
technical and financial resources, while revenues generated from such 
products, assuming they are developed successfully, may not be realized for 
several years.  Other material and unpredictable factors which could affect 
operating results include, without limitation, the uncertainty of the timing 
of product approvals and introductions and of sales growth; the ability to 
obtain necessary raw materials at cost effective prices or at all; the effect 
of possible technology and/or other business acquisitions or transactions; 
and the increasing emphasis on controlling healthcare costs and potential 
legislation or regulation of healthcare pricing.

RESULTS OF OPERATIONS

     THREE MONTHS ENDED  SEPTEMBER 30, 1997 AS COMPARED WITH THREE MONTHS 
ENDED SEPTEMBER 30, 1996

     The Company's license and research revenue increased by approximately 
14% to $6.5 million for the three months ended September 30, 1997, compared 
to $5.8 million for the three

                                        11

<PAGE>

months ended September 30, 1996.  The increase is primarily a result of the 
$4 million initial license fee received under the Schering License Agreement, 
net of a reduction in research revenue from the license agreement with HMRI.  
The Company expects research revenue to continue at comparable levels in 1998 
compared to 1997, but expects milestone payments to diminish.

     Research and development expenses increased by approximately 30% to $12 
million for the three months ended September 30, 1997, compared to $9.3 
million for the three months ended September 30, 1996.  The net increase in 
expenses was primarily due to an increase of $1.4 million in payments to 
universities and outside consultants for preclinical and clinical trials and 
other product development work and an increase of $833,000 in staffing costs.

     General and administrative expenses decreased by approximately 7% to 
$1.8 million for the three months ended September 30, 1997, compared to $1.9 
million for the three months ended September 30, 1996.

     Investment income and other was $969,000 for the three months ended 
September 30, 1997, compared to $1 million for the three months ended 
September 30, 1996.

     Alliance expects to continue to incur substantial and increasing 
expenses associated with its research and development programs.  Operating 
losses may fluctuate from quarter to quarter as a result of differences in 
the timing of revenues earned and expenses incurred and such fluctuations may 
be substantial.  The Company's historical results are not necessarily 
indicative of future results.

PART II  OTHER INFORMATION:
Item 6.  Exhibits and Reports on Form 8-K
(a)  There were no exhibits.
(b)  The Company filed a report on Form 8-K dated September 23, 1997, regarding
     the Schering License Agreement, which information is
     contained in Note 2 to the Condensed Consolidated Financial Statements
     above.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the 
Registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

                                            ALLIANCE PHARMACEUTICAL CORP.
                                                    (Registrant)

                                        /s/ THEODORE D. ROTH
                                            ----------------
                                            Theodore D. Roth
                                        Executive Vice President
                                      and Chief Financial Officer
Date:  November 7, 1997

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